Non-Compete Agreement

A non-compete agreement is also called a noncompete agreement, non-competition agreement or non-comp for short. In legalese it's a covenant not to compete and among what are generally referred to as restrictive covenants. It might accompany another agreement or be included as a clause within another for your signature, such as a non-disclosure, severance or separation agreement.

Signing a non-compete agreement will waive your employee right to land a job with your employer's competitors. It might also waive your right to compete with your employer in other ways, such as through self-employment or client solicitation. It will likely restrict you in time (e.g., for one year), geography (distance from your employer) or both.

In most states, employers with legitimate business reasons may require new-hires and current employees to sign reasonable non-compete agreements just to keep their jobs. That's because employers have the right to protect their businesses. It's also because employment is at will.

The courts have generally frowned on employers who required current employees to sign new agreements that waived their employee rights, without offering the employees some sort of "consideration" (compensation) outside of just letting them keep their jobs; but, that's changing regarding non-compete agreements.

The courts in a growing number of states have set precedents allowing employers to essentially coerce employees into signing non-compete agreements under the threat of termination, with keeping their jobs as their only compensation. Because employment is presumed to be at will, the same courts do not consider such coercion to be signing under duress.

If you're a resigning employee, then your employer might offer you a "bribe" in the form of severance pay or a better severance package to get you to sign a non-compete agreement, because your employer has less leverage otherwise. But, if you're a new-hire, then your new employer might not offer anything to get you to sign, except for the job; in the eyes of a court, landing a job alone is likely to be sufficient compensation.

Generally, employee non-compete agreements are "legal" (enforceable) in most states, if they are reasonable in scope. If non-compete agreements are too restrictive or too broad, then the courts will likely make the agreements null and void or selectively "blue-pencil" (strike) the unreasonable clauses within.

In some states, employee non-compete agreements are not enforceable or not as enforceable as they are in other states; for example, at this writing, California enforces non-compete agreements only in regard to the sale of businesses or dissolution of partnerships, if common-law restrictions don't come into play.

The bottom line is, your non-compete agreement is likely enforceable, but maybe not. If that sounds wishy-washy, it's because it intentionally is. That's because whether or not it's fully or partially enforceable is a matter of legal interpretation under your particular circumstances, the same as any other contract.

To discover the extent to which non-compete agreements are generally enforceable in your work state, start by contacting the relevant state labor department. To learn of enforceability specifics for your particular agreement, you'll likely need to consult an attorney in your work state; the same goes to receive specific legal advice about breaking your particular non-compete agreement.

The Wall Street Journal reported that a study it commissioned showed that the number of U.S. lawsuits filed over non-competes shot up 60 percent between 2002 and 2012.

If you have questions or doubts about signing a non-compete agreement (or any employment agreement), then it's a good idea to consult an attorney. To avoid enforceability problems, your employer will likely give you a reasonable amount of time to sign, so that you may first consult an attorney. Consulting an attorney will likely cost a fee, but it could save you a lot in heartache and legal expenses down the road.

For example, if you break your non-compete agreement by hiring on with a competing employer, then your former employer might sue you. Your former employer might also sue the competing employer on the grounds of tortious interference, if the competing employer doesn't fire you after learning that you've allegedly violated your non-compete agreement.

See About Employment Contracts and Agreements for additional information.